I have largely abandoned most growth plays since the Federal Reserve starting its most aggressive monetary tightening since the early 1980s last March. The central bank's policy is aimed at putting a halt to surging prices, after inflation hit its highest levels in over 40 years in 2022.
Unfortunately, these interest-rate hikes have and will continue to cause a lot of collateral damage. They have also significantly pushed up the discount rate that growth names are evaluated by, resulting in substantial damage in much of growth sectors of the market. A slowdown in economic activity as a result of the Fed's moves over the past year has also been a headwind for these areas.
Amid this environment, I have tilted my portfolio heavily in favor of value and put a lot in investments with considerable yield. Indeed, my biggest "no brainer" market move in recent months has been to place most of my cash holdings into Treasuries. The 3-Month T-bill currently yields north of 5% with the 6-Month and 1-Year Notes not far behind.
I have also built up a decent position in the Energy Select Sector SPDR Fund ETF (XLE) . This well-diversified ETF gives me exposure to the energy sector and yields 4% to boot. I have employed a simple covered call strategy around these holdings. This provides some downside protection and enhances the income stream from this ETF.
Meanwhile, I have avoided any exposure to REITs, a traditionally high dividend part of the market, due to increasing worries about commercial real estate, which is being buffeted by rising rates, falling valuations in much of the space including office buildings, and the large amount of refinancing and rollovers that will have to happen over the next few years.
I do hold some individual high-yield names. One of these is Plains GP Holdings, L.P. (PAGP) . This midstream concern provides for transportation of crude oil and natural gas liquids (NGLs) via pipelines, gathering systems, and trucks. The company also owns and operates storage, terminalling, and throughput services facilities primarily for crude oil, NGLs, and natural gas. The company is well-run, the stock is reasonably valued and the shares yield more than 7%.
I have also established a recent stake in Walgreens Boots Alliance (WBA) , which currently yields 5.4%. I have my holdings within covered call positions to enhance yield and provide some downside protection.
WBA currently trades at about 7x expected fiscal 2023 earnings. And while profits are likely to decline 10% this fiscal year thanks to weaker margins, a lot of bad news seems priced into the stock at these levels. The company's recent acquisitions expanded its footprint to faster-growing segments of the healthcare space. Also, I could see the company attracting the attention of an activist investor, which recently has been rumored.
Even if WBA shares trade sideways, which seems one likely scenario, I will make a solid if unspectacular return with my covered call positions on this name.
Until the Fed pivots and the outlook for economic activity improves, my portfolio continue to much more heavily weighted in these sorts of safe-yield plays over growth names.
